Business Linkages: Enabling Access to Markets at the Base of the Pyramid. Report of a Roundtable Dialogue March 3-5, 2009, Jaipur, India

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1 Business Linkages: Enabling Access to Markets at the Base of the Pyramid Report of a Roundtable Dialogue March 3-5, 2009, Jaipur, India

2 Written by Beth Jenkins with Eriko Ishikawa Designed by Alison Beanland 2009 International Finance Corporation, International Business Leaders Forum, and the CSR Initiative at the Harvard Kennedy School Acknowledgements The authors would like to thank the CSR Initiative s Jane Nelson and IFC s Sujata Lamba and Toshiya Masuoka for their input into this report as well as for the leadership and support they have provided for the Business Linkages Series overall. Harsh Vivek, Neha Kaul, Ananthy Thambinayagam, Brad Roberts, and Ishira Mehta contributed to the initiative descriptions found in Appendix 1. Amanda Gardiner also provided invaluable review comments. Finally, the authors gratefully acknowledge the participants in the Roundtable Dialogue Series and particularly the March 3-5, 2009 Dialogue in Jaipur, India, upon whose experiences and insights this report is based. Rights and Permissions The material in this publication is copyrighted. Quoting, copying, and/or reproducing portions or all of this work is permitted provided the following citation is used: Jenkins, Beth and Eriko Ishikawa Business Linkages: Enabling Access to Markets at the Base of the Pyramid. Report of a Roundtable Dialogue March 3-5, 2009, Jaipur, India. Washington, DC: International Finance Corporation, International Business Leaders Forum, and the CSR Initiative at the Harvard Kennedy School. Cover photographs: DSCL Hariyali Kisan Bazaar, Jaipur Rugs (photo by Eriko Ishikawa), and Jain Irrigation (photo by Subrata Barman) The findings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of IFC, IBLF, or the Harvard Kennedy School.

3 Business Linkages: Enabling Access to Markets at the Base of the Pyramid

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5 Table of Contents PREFACE 5 1. OPPORTUNITIES TO ENABLE ACCESS TO MARKETS AT THE BASE OF THE PYRAMID 6 2. CHALLENGES IN FORMING BUSINESS LINKAGES PATTERNS OF SOLUTIONS AND CROSS-CUTTING THEMES CONCLUSIONS 16 APPENDIX 1. BUSINESS LINKAGE INITIATIVES OF JAIPUR ROUNDTABLE PARTICIPANTS 17 APPENDIX 2. JAIPUR ROUNDTABLE PARTICIPANTS 25 ENDNOTES 26

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7 Preface Ever since the early thought leaders began to speak and write about doing business with the poor, they have looked to India as a source of innovation and experimentation in products, services, and business models intended to reach new markets at the base of the pyramid (BOP). Hence it was natural that following the launch of the Business Linkages roundtable series in Washington DC in 2007, and subsequent roundtables in Johannesburg and Rio de Janeiro, the fourth roundtable was held at the heart of the BOP action in Jaipur, India. The Business Linkages roundtable dialogues, held in partnership with the International Business Leaders Forum and the CSR Initiative at the Harvard Kennedy School, explore business models that incorporate those at the BOP as consumers, producers, and entrepreneurs, with special emphasis on producers and entrepreneurs. This emphasis was particularly pronounced in Jaipur, with the effects of the financial crisis making themselves felt throughout the economic pyramid around the world. Now, more than ever, we must find sustainable ways of reducing vulnerability and expanding opportunity for all. Pioneering work is taking place, and as we progress, issues of replicability and scalability come to the fore. There are still more questions than answers. In this vein, the Business Linkages roundtables are intended as safe, open spaces for practitioners to learn from one another opportunities that are still rare for many. We have come a long way, from learning about innovation in enterprise development from Anglo American in South Africa, to exploring ways to finance and support entrepreneurs with Tribanco in Brazil, to looking at innovative BOP models like Jaipur Rugs in India. With each successive roundtable, we are growing and evolving a body of knowledge on the practice of business linkages. In this context, the current report adapts and builds upon the two previous reports in the Business Linkages series: Business Linkages: Lessons, Opportunities, and Challenges (2007) Supporting Entrepreneurship at the Base of the Pyramid through Business Linkages (2008) On behalf of IFC and its partners IBLF and the Harvard Kennedy School, I would like to extend a sincere thanks to the practitioners who have made time in their busy schedules to make this learning possible. Toshiya Masuoka, Director, Corporate Advice, IFC BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 5

8 1 Opportunities to Enable Access to Markets at the Base of the Pyramid Business models that offer critical goods, services, and livelihood opportunities to those at the base of the economic pyramid the four billion people worldwide who earn less than $8 a day 1 are increasingly being explored as engines of business and development benefit. On the development side, many products and services when appropriately designed, packaged, and delivered can help purchasers meet basic human needs and improve their productivity. This is especially true in industry sectors such as food and beverage, financial services, information and communications technology, health care, and water and sanitation. Similarly, the opportunity to participate as suppliers, distributors, or retailers in commercial value chains can help increase local job and wealth creation, enhance skills and capacity, add purchasing power, and generally stimulate economic activity and development contributing, in the process, to quality of life. On the business side, models targeting the base of the pyramid can unlock potentially vast new markets and help catalyze innovation, reduce costs, increase flexibility and the ability to specialize, meet legal requirements, and enhance social license to operate, thus contributing to overall competitiveness. These BOP or inclusive business models fall into three broad categories: buying from, distributing through, and selling to those at the base of the pyramid. 2 Many companies also support enterprise development and access to markets at the BOP more generally, beyond their value chains, for any combination of legal, social, and economic reasons such as complying with concession agreements, building employee and community morale, and preserving social license to operate. BOX 1 RECENT FLAGSHIP REPORTS ON BUSINESS WITH THE BASE OF THE PYRAMID Since the last Business Linkages Roundtable in Rio de Janeiro, Brazil, in June 2008, three major reports on doing business with the base of the pyramid have emerged. The first, released in July 2008, was the United Nations Development Programme s Creating Value for All: Strategies for Doing Business with the Poor, which analyzes constraints to and strategies for inclusive business based on a sample of 50 case studies featuring social enterprises and for-profit companies of all sizes in a range of countries around the world. The second, the World Economic Forum s The Next Billions: Unleashing Business Potential in Untapped Markets, released in January 2009, identifies perspectives and design principles for the development of successful BOP business models. The third, Monitor s Emerging Markets, Emerging Models, released in March 2009, analyzed a sample of more than 250 mostly Indian cases to identify business models with the potential for scale. Those models included pay per use; no frills service; paraskilling; shared channels; contract production; deep procurement; and demand-led training. 6 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid

9 1.1 Buying From the Base of the Pyramid Companies are sourcing a wide variety of products and services from local small and micro enterprises. These products and services range from agricultural commodities to cleaning and printing services to higher value-added inputs such as manufactured components. Buying from local small and micro enterprises can help companies cut costs and increase flexibility. It can increase quality, traceability, and sustainability of supply, which is increasingly important in agriculture, forestry, apparel, and other sectors. In some cases, for example in coffee and tourism, it can contribute to an interesting, unique product offer. And buying from local small and micro enterprises helps build strong and diversified local economies, fortifying companies social licenses to operate and enhancing their long-term business prospects. BOX 2 BUYING FROM THE BOP: GLAXOSMITHKLINE S MILK SUPPLY CHAIN IN INDIA The Consumer Healthcare division of GlaxoSmithKline (GSK) leads in the health food drink category in India. To ensure a consistent, high-quality supply of milk, GSK has built a procurement structure to support small dairy farmers linking into its supply chain. First, GSK has named representatives in villages to support dairy farmer capacity building. Farmers bring their milk to their village representatives, many of whom have bulk coolers on premises; or, if they are not too far away, they can deliver directly to GSK milk chilling centers. By bringing technical knowledge and market infrastructure to the village level, GSK has catalyzed an increase in commercial dairy farming and enabled farmers to improve productivity and quality increasing their incomes as a result. For example, average yield per animal has gone up by 33%. 1.2 Distributing Through the Base of the Pyramid Distributing through small and micro enterprises can be an effective strategy for reaching target markets at the base of the pyramid. In some cases, infrastructure is so poor that traditional distribution methods, using large trucks for example, simply cannot be used. In other cases, sales volumes or price points are too low for traditional distribution to be cost-effective. In still other cases, the local rooting and relationships of trust that small and micro enterprises possess within their communities are critical to the successful marketing and sales of products and services there. From the community s perspective, distributing through small and micro enterprises also creates jobs and, in some cases, enables better customer service tailored to their needs. BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 7

10 BOX 3 DISTRIBUTING THROUGH THE BOP: COCA-COLA SABCO S MANUAL DISTRIBUTION CENTERS IN AFRICA AND ASIA In East Africa and several countries in Asia, Coca-Cola Sabco makes daily deliveries to thousands of tiny shops in low-income communities through a system of Manual Distribution Centers owned and operated by local entrepreneurs. These micro-distributors can help shop owners identify the kinds of products that will be fast-moving, and they can offer mixed-case ordering and frequent delivery of small quantities of product. This enables shop owners to reduce the amount of investment they have tied up in inventory, reduce out-of-stock situations, and meet consumer demand. This increases shop owners sales, helping their businesses to grow and succeed. Today there are over 2,200 MDCs operating in Sabco territory in East Africa generating revenues of $426 million and directly employing over 11,000 people. CASE STUDIES 1.3 Selling To the Base of the Pyramid Companies of all kinds are growing more interested in base of the pyramid consumer markets. In some industries, selling to the BOP offers opportunity for simultaneous business and development impact. Certain products and services have the effect of empowering the purchaser and helping to make him or her more productive. These include: health care; education; financial services such as credit, insurance, savings, and payments; information and communications technologies, such as mobile phones and Internet access; production equipment and technology, such as small-scale irrigation systems; utilities like water and power; and distribution and business development services appropriate to the needs of small and micro enterprises. The most obvious reason for companies to sell to the BOP is the opportunity to grow revenues by developing new markets. BOP end consumers and small, and micro enterprises are currently underserved in many often all of the areas listed above. Reaching them successfully usually requires product and business process adaptation, which points to a second reason to sell to them: the effort drives creativity and innovation. In some cases, innovations that target the BOP prove relevant in higher-income segments as well, a phenomenon McKinsey & Company has termed innovation blowback. 3 8 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid

11 BOX 4 SELLING TO THE BOP: INDIA S IDEA CELLULAR Idea Cellular, part of the Aditya Birla Group, a leading Indian conglomerate, is one of the fastest-growing telecom service providers in the country. A main factor in its rapid growth has been its penetration into India s vast rural market, home to an increasing percentage of new mobile customers. Idea Cellular conducts media campaigns in local dialects and offers a suite of products and services customized to the needs of rural and semi-urban consumers at the base of the pyramid. These include low-cost handsets, talk-time vouchers in denominations as low as US$0.20, and value-added services such as SMS-based religious offerings. Idea now has more than 44 million subscribers and more than 700,000 retail outlets around the country, approximately 300,000 of which serve consumers at the base of the pyramid. 1.4 Going Beyond the Value Chain Many companies are also working with BOP consumers, producers, and small and micro enterprises beyond their value chains for example, in broad-based education, health, and enterprise development efforts. Such efforts can improve quality of life and help strengthen and diversify local economies. For the companies driving them, they can reduce reputational, operational, and political risk in the short term and increase growth prospects in the long term. BOX 5 GOING BEYOND THE VALUE CHAIN: SYNGENTA FOUNDATION S AGRICULTURAL DEVELOPMENT WORK IN INDIA Syngenta is a leading multinational agribusiness concern, selling primarily seeds and crop protection products. The Syngenta Foundation focuses on raising farmer productivity and linking farmers to markets. In India, the foundation has established four projects across four states covering the cultivation of rice and vegetables. Farmer training is a core component of all four projects. Sometimes Syngenta seeds are provided; for example, the Syngenta Foundation is now working with approximately 6,000 farmers to grow beets from seeds developed specifically for warm climates. Finally, the projects assist with commercialization, for instance by organizing farmers into groups for collective marketing. BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 9

12 2 Challenges in Forming Business Linkages Business linkage practitioners in large firms face three main categories of challenges in doing business with those at the BOP: operational challenges, reputation and relationship management challenges, and systemic challenges. 4 A growing body of experience suggests that the issues are similar across industries and geographies, whether a firm is buying from, distributing through, or selling to those at the BOP. Operational challenges include securing internal commitment for linkage efforts within the firm, obtaining reliable, actionable information about BOP consumers, producers and other enterprises present in the local market, and measuring the impact (especially the social impact) of any linkages that are formed. Reputational and relationship management challenges include managing community expectations and reducing the economic dependence of local producers and small and micro enterprises on the business relationships they establish with the larger firm. Systemic challenges include building the skills and capacity of small and micro enterprises at the BOP, improving their access to finance, and strengthening the regulatory or public policy environment for linkage efforts. In Jaipur, participants highlighted two more systemic challenges: addressing inadequate physical infrastructure and filling gaps in complementary markets, such as the market for agricultural inputs like fertilizer and irrigation equipment. 5 Many of the operational, reputational, and relationship management challenges to doing business with the BOP have their roots in the systemic challenges. It is worth noting that these challenges work in the opposite direction as well, inhibiting those at the BOP in their efforts to do business with larger, often more formal, firms. Systemic challenges are thus some of the most critical to overcome if we hope to sustain, replicate, and scale up business linkage activity worldwide. At the same time, they are some of the least amenable to unilateral, quick-fix solutions. Creative, new approaches will be required. 10 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid

13 3 Patterns of Solutions and Cross-Cutting Themes There are clear patterns in the solutions discussed during the Business Linkages roundtables Washington, Johannesburg, Rio de Janeiro, and now Jaipur, as as Tables 1-3 show. 6 More information on these examples can be found in Appendix 1 and in prior reports in the Business Linkages series. 7 TABLE 1 OPERATIONAL CHALLENGES, SOLUTIONS, AND EXAMPLES Operational Challenges Securing internal commitment Obtaining reliable, actionable market information Measuring impact Solutions Procurement policies Performance measures and incentives Culture of longterm thinking Dedicated staff or departments Supplier databases Network leveraging Collectively developed frameworks Participatory monitoring and evaluation agreements Examples The National Content Strategies of BP in Azerbaijan and ExxonMobil in Chad The purchasing policy of Pan American Energy in Argentina s Gulf of San Jorge BP incorporates National Content targets into the performance metrics of delivery managers Ecom moved from dollars-per-ton to dollars-per-ton-per-hectare, a measure of productivity Nestlé s concept of shared value creation The venture development manager at Rio Tinto s Diavik Diamond Mines Anglo American s Anglo Zimele family of funds Real Microcrédito s local loan officers in Brazil s favelas RuralFone s local sales coordinators and delivery agents in northeast Brazil Newmont s linkages department at the Ahafo mine in Ghana The supplier database created by ExxonMobil, IFC, and the local chamber of commerce in Chad The shared supplier databases of the Private Sector Initiatives in Tanzania and Malawi Petrobras and the national small business association SEBRAE in Brazil Unilever and Ashoka Fellow M.G. Papamma s network of women in India; Amanco and Ashoka Fellow Arturo Garcia s network of farmers in Mexico Coca-Cola and the Women s Union in Vietnam Barclays and the Ghana Cooperative Susu Collectors Association ICICI Bank, microfinance institutions, and other civil society organizations in India The WBCSD-IFC Measuring Impact Framework The Rockefeller Foundation s Impact Investing Network s IRIS Standards Diavik Diamond Mines Socio-Economic Monitoring Agreement with the local government and indigenous groups Petrobras and SEBRAE s selection of indicators jointly with stakeholders BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 11

14 TABLE 2 REPUTATION AND RELATIONSHIP MANAGEMENT CHALLENGES, SOLUTIONS, AND EXAMPLES Reputation & Relationship Management Challenges Managing expectations Reducing dependence Solutions Social responsibility agreements Advance purchase agreements Market diversification services for suppliers Local economic development beyond the value chain Peer networking Appropriate exit strategies Examples Diavik Diamond Mines Participation Agreements with indigenous groups Newmont s Social Responsibility Agreement, developed through a Social Responsibility Agreement Forum at its Ahafo mine in Ghana SABMiller s fixed price agreements with sorghum farmers in Uganda and Zambia Votorantim Celulose e Papel s inflation-indexed, fixed price agreements with eucalyptus farmers in Brazil Jain s commitment to purchase onions at a pre-set minimum price or the market price at harvest time (whichever is greater) The small business fairs of IFC and the Asociación los Andes de Cajamarca near Newmont s Yanacocha mine in Peru SABMiller, CARE International, and local commodities brokers support to sorghum farmers in Uganda and Zambia SABMiller s KickStart program Cairn India s work with dairy farmers in Rajasthan SBP s Business Bridge program in South Africa Newmont and IFC created the Asociación los Andes de Cajamarca to lead and sustain SME development near Yanacocha over time The Vietnam Business Links Initiative secured government buy-in and replication of its standards and training programs 12 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid

15 TABLE 3 SYSTEMIC CHALLENGES, SOLUTIONS, AND EXAMPLES Systemic Challenges Building knowledge and skills Improving access to finance Strengthening regulatory and public policy environments Solutions Standardized training modules Best practice guidelines Ongoing coaching Enterprise Centers Peer networking Own financing institutions or arms Capitalization of external (often joint) funds Links with microfinance institutions Links with commercial banks Non-traditional collateral A focus on financial literacy Collective engagement in public policy dialogue Public sector capacity-building Examples IFC s SME Toolkit and Business Edge Grupo Martins Martins Retail University in Brazil SEBRAE s programs for Brazilian micro and small businesses seeking to incorporate formally Starbucks CAFÉ practices Nestlé s Nespresso AAA certification Unilever s Sustainable Tea Initiative guidelines Grupo Martins, Ruralfone, Coca-Cola Sabco, Anglo Zimele, Mozal Aluminum, and Bharatiya Yuva Shakti Trust (the Indian affiliate of Youth Business International) BP in Azerbaijan ExxonMobil and IFC in Chad Microsoft and UNIDO in Uganda Anglo Zimele s Small Business Hubs in South Africa SABMiller and Cargill s Sanjhi Unnati Centers in barley-growing districts in India SBP s Business Bridge program in South Africa General Motors mentorship brokering between large and small suppliers Petrobras Rede Petro system in Brazil Anglo American s Anglo Zimele Grupo Martins Tribanco ECOM Supplier Finance The $15 million Supplier Finance Facility of BP and IFC in Azerbaijan The Aspire SME financing facilities of GroFin and the Shell Foundation, together with local banks in Africa Starbucks investment in Root Capital to provide financing for small-scale coffee suppliers in Central America Pepsico and BASIX in India Chevron s partnerships with Kazakh banks BankTuranAlem and KazKommertzBank Votorantim Papel e Celulose helps eucalyptus farmers access credit from Banco Real in Brazil Mundo Verde refers suppliers to Caixa Econômica Federal and Banco do Nordeste in Brazil Barclays accepts grain stocks as collateral in Zambia Anglo Zimele incorporates financial literacy into its Small Business Start- Up Fund s lending requirements Real Microcrédito credit agents provide financial education along with sometimes instead of loans The National Business Initiative and Business Trust in South Africa The Zambia Business Forum Business Action for Africa BP provided the Azeri government with revenue management tools IFC helped the provincial government of Cajamarca, Peru, to streamline business registration procedures BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 13

16 TABLE 3 SYSTEMIC CHALLENGES, SOLUTIONS, AND EXAMPLES continued Systemic Challenges Addressing inadequate physical infrastructure Filling gaps in complementary markets Solutions Supply collection centers Shared infrastructure Information & communications technologies Marketplaces Direct sales Examples The SABMiller-Cargill Sanjhi Unnati Centers, ITC Ltd s Choupal Saagars, GSK s milk chilling centers, and DSCL s Hariyali Kisan Bazaars, all in India Mundo Verde s collection centers in Brazil DSCL Hariyali Kisan Bazaar often shares land and premises (and associated costs, e.g. utilities and maintenance) with partners ITC s e-choupals FINO s use of smart card-based banking solutions ITC s e-choupals and Choupal Saagars, the SABMiller-Cargill Sanjhi Unnati Centers, and DSCL s Hariyali Kisan Bazaar in India Jain sells high-quality onion seeds and other inputs to farmers through onthe-ground extension agents Andhra Pradesh Paper sells tree seedlings to farmers Cutting across this landscape of challenges and solutions are two common themes: systems thinking and collaboration. Systems thinking. Any stable, profitable business relationship requires a stable, profitable partner whether it be a supplier, a distributor, or even a customer. But BOP suppliers, distributors, and customers are plagued by systemic challenges that make stability and profitability hard to achieve. They might be cut off physically by roads that wash out every year; unwilling to risk changing their livelihoods because insurance isn t available; or unable to meet their contractual obligations because electrical outages shut down production every few hours. In this context, many smart, well-intentioned efforts to do business in BOP markets meet with unexpected consequences, and struggle to achieve sustainability and scale. A company might set out to sell small-scale farmers irrigation equipment on credit, which improves their productivity by 100% or more but the farmers still default on their loans because they can t find buyers, or because the sudden increase in supply drives prices down. Another company might adopt a policy establishing BOP procurement targets of 10 or 20%, but it costs those small and micro businesses four years annual income to incorporate legally, so they can t take advantage. The examples are numerous. At the BOP, market systems are full of holes and cannot be taken for granted, as they often are at the top of the pyramid. Companies have to think proactively about the systems in which their BOP suppliers, distributors, and customers are embedded and often take action to make them work better. As Monitor puts it, they have to organize the entire value chain end-to-end, 8 filling in the missing pieces that make it possible for their partners to find stability and earn a profit. 14 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid

17 Collaboration. Some companies fill in the missing pieces themselves, considering it part of the cost of doing business. Sometimes it is economically viable to do so. For example, in India, GlaxoSmithKline has organized the milk value chain end-to-end for its flagship brand Horlicks. At times, organizing the value chain end-to-end involves or even creates additional business opportunities. Jain Irrigation and Andhra Pradesh Paper, for instance, sell agricultural inputs to and buy agricultural produce from the same small-scale farmers. When it is not economically viable for a company to take such holistic approaches, they sometimes look to corporate foundations or social responsibility departments to help make up the difference. Jaipur Rugs, for example, relies on the Jaipur Rugs Foundation to do the community organizing and training that enable BOP weavers to participate in its production chain. Certainly, organizing a value chain end-to-end is costly, and it typically goes beyond the capabilities of any single actor. As a result, a third and increasingly common approach is for companies to reach out to external collaborators who can fill in pieces of the system that they themselves cannot. Such collaborators may include companies in complementary lines of business; government agencies; civil society organizations; microfinance institutions; international development agencies; and international financial institutions. For instance, microfinance institution and business development service provider BASIX is working with ICICI Lombard to offer crop insurance to the potato farmers in Pepsico s value chain in India. In another example, more than 110 companies use ITC Ltd s network of e-choupal kiosks and Choupal Saagar stores to provide access to nearly everything rural farmers need to be successful, from market prices to extension services to farm equipment to tele-health care to on-site purchasing of their crops. Collaborative models are increasingly characterized by Multiple actors Finding complementary business (or mission-based) cases Specializing in what they do best Together filling in gaps in the market systems of the BOP Reducing and targeting the need for subsidies to make those systems work And enabling BOP business models to achieve greater sustainability and scale. Collaborative models have various advantages. For example, they spread investment costs among multiple actors and reduce the need for subsidies, whether from governments or from corporate social responsibility or philanthropy departments. They enable each actor to specialize, and thus, at least in theory, permit greater scale. At the same time, in practice, collaborative models can come with non-negligible transaction costs, for example in the organization and coordination of the system. These challenges become increasingly complex as the number and diversity of collaborators increases for instance when non-business actors, who speak different languages, have different perspectives and incentives, and are governed by different legal frameworks, are involved. BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 15

18 4 Conclusions In a time of financial crisis, we are reminded that connecting to larger national and international markets is not a guaranteed route to stability or profitability for those at the base of the pyramid. Few opportunities are entirely risk-free. Any risk can be too much risk for people with little to fall back on. Reducing dependence and other operational, reputation and relationship management, and systemic challenges to doing business with the BOP take on special relevance in times like these. We are encouraged to see patterns of solutions emerging and encourage business linkage practitioners to continue to share their experiences and insights. At the same time, the collaborative, systems-oriented aspects of their work deserve greater attention and understanding. Together with practitioners in business, government, and civil society around the world, IFC, IBLF, and the CSR Initiative at the Harvard Kennedy School look forward to continuing and deepening our exploration of this field. 16 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid

19 Appendix 1 Business Linkage Initiatives of Jaipur Roundtable Participants Andhra Pradesh Paper Mills 9 Andhra Pradesh Paper Mills (APPM) is a pulp and paper company based in the state of Andhra Pradesh, India. In the 1980s, APPM foresaw a steep decline in raw material from conventional forests and, as a result, implemented a strategy to achieve a sustained supply through raw material self-sufficiency. This included a massive farm forestry program encompassing 2,842 villages in seven districts along the Andhra Pradesh coast. The program focuses on: conserving natural resources and a healthy environment, establishing massive plantations on marginal and degraded farm lands, and creating an eco-friendly, farmer-friendly commercial environment. To reach its goal, APPM promoted two tree species, casuarina and leucaena, noted for their affordability, adaptability, and rapid growth, as well as their ability to offer continuous flows of financial benefits to farmers. APPM built clonal and seedling nurseries close to the villages. Through the distribution of genetically superior planting stock, together with information dissemination and technical assistance, the company has helped farmers reduce their initial establishment costs from $200/hectare to $50/hectare and improve the productivity of their land by up to three times, thereby increasing their incomes. These actions have also resulted in a tripling of hectares under plantation (from 4,782 in 2003 to 15,000 in 2008), providing APPM with a secure source of supply. Anglo Zimele 10,11 Anglo Zimele is the enterprise development and empowerment initiative of mining and natural resource company Anglo American in South Africa. Anglo Zimele manages three separate funds: the Supply Chain Fund, the Anglo Khula Mining Fund, and the Small Business Start-Up Fund. In addition to financing, these funds provide handson support in areas such as management, corporate governance, legal compliance, accounting, administration, public relations, and environment, health and safety. The oldest fund, the Supply Chain Fund, has financed and supported over 150 businesses since it was established in It provides both debt and equity financing and usually takes minority stakes of up to 20% in the businesses in its portfolio. In addition to the technical assistance described above, the fund looks for opportunities to link its portfolio companies into Anglo American s supply chain. The Supply Chain Fund targets firms that are already commercially viable so that it can focus its assistance on generating significant future growth, and typically exits within about three years. As of 2006, approximately 72% of its investees were still in operation, employing over 2,200 people. Anglo Zimele s newest fund, the Small Business Start-Up Fund, focuses on entrepreneurs and small businesses in the communities surrounding Anglo American s mines. Through a network of 11 local Small Business Hubs, the fund provides loans at an interest rate of 10% per year (compared with the current prime lending rate of 12%) together with assistance formulating business plans, training and coaching on the essentials of running a business, tax advice, and mentoring. As of December 2008, the Small Business Start-Up Fund had financed 179 businesses ranging from construction to catering to plumbing, 40% of them headed by women entrepreneurs. Though many borrowers had no track records and the fund does not request collateral, the repayment rate was 91%. BASIX 12 Established in 1996, BASIX works to create sustainable livelihoods for the rural and urban poor through financial services integrated with technical assistance. The organization covers more than 1.5 million mostly rural households in more than 18,000 villages in 15 states, and it has approximately $120 million in assets under management. In 2001, BASIX realized that credit was necessary but not sufficient for the creation of sustainable livelihoods and developed its triad strategy: Livelihood financial services (namely savings, credit, insurance, and remittances) Agricultural and business development services (improving productivity and local value addition, and facilitating market linkages) Institutional development services (such as forming and strengthening community groups, building the capacity of grassroots organizations, and engaging in policy advocacy) BASIX leverages a wide range of partnerships in the implementation BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid 17

20 of this three-pronged strategy, including microfinance institutions, non-governmental organizations, cooperatives, government agencies, and national and multinational companies such as Pepsico, ITC Ltd, JK Seeds, AVIVA, Royal Sundaram, and ICICI Lombard Insurance. These partnerships expand the array of competencies at the organization's disposal, increase its outreach, reduce its transaction costs, and reduce its risk as well as that of its customers. Today BASIX has more than 200,000 savings customers, 600,000 microcredit customers, and one million insurance customers. Bharatiya Yuva Shakti Trust 13 Bharatiya Yuva Shakti Trust (BYST) is a youth entrepreneurship initiative that turns job seekers into job creators. BYST partners with the Indian private sector to provide underprivileged youth ages with training, collateral-free financing, structured mentoring, and networking opportunities that together foster entrepreneurial development and sustain thriving businesses. For example, BYST makes deliberate efforts to network these youth businesses into the value chains of larger corporations, efforts which have been boosted by corporate affirmative action programs seeking qualified Tier 2 and 3 suppliers from disadvantaged backgrounds. Through BYST, approximately 1,500 youth businesses have been created, generating approximately 15,000 new jobs. BYST and IFC are working together to develop a self-sustaining model that can be replicated in other developing countries. A significant part of IFC s assistance is dedicated to the Mentor Development Program, which will establish a mentor accreditation process expected to expand BYST s mentor network to 30,000, impacting 90,000 youth enterprises across India. Cairn India 14,15 Cairn Energy is an independent oil exploration and extraction company with headquarters in Edinburgh, Scotland. Cairn India, a listed subsidiary of Cairn Energy, currently owns 30% of India s oil assets. The company operates in Rajasthan, Andhra Pradesh, and Gujarat. In Rajasthan, Cairn and its partner, the International Centre for Entrepreneurship and Career Development, work through a local Enterprise Center to build the capacity of SMEs to qualify for contracts with the company and its contractors. To date, these efforts have resulted in 125 vendors qualified and registered. These vendors are on the small end of the SME spectrum, with one to four employees, plant and machinery investment of between Rs 25 lakhs and Rs 1 crore, and revenues of Rs 4,000 to Rs 45,000 per month. Most supply construction-related materials, furniture, textiles, and services like catering and janitorial services. 14 of these vendors have received orders and will probably see their incomes increase. In total, they have generated over $2 million in construction and $400,000 non-construction contracts. Cairn is also supporting employment through the provision of skills training, which had reached over 3,750 people as of March Most of the skills covered are construction-related and required for employment by Cairn construction contractors. These include welding, plumbing, masonry, electrical, carpentry, and bar-bending, among others. Other skills are more general like mobile phone repair, computing, computer-based accounting, and English. Nominal fees are charged to trainees, with Cairn also contributing for training specifically targeted to its business needs. Cairn and IFC split the remaining costs 70:30. Finally, Cairn is working to strengthen local enterprise and economic development beyond its value chain, for example through programs that support dairy farmers. Through Cairn s dairy program, more than 700 women have organized into 13 self-help groups and engaged in a transparent process of collecting surplus milk. Over $160,000 in revenues have been generated. Calypso Foods 16,17 Calypso Foods supplies branded, processed fruits and vegetables sourced from Indian smallholder farmers to domestic and international markets. Its domestic customers include institutional buyers like large restaurant chains; its international customers include grocery chains with private label products. Fruits and vegetables are the fastest-growing segment in global agricultural trade, at over 12% per year. This growth rate has its roots in multiple sources of demand, ranging from food to pharmaceuticals to alternative medicines to natural cosmetics. While India is currently a net importer of fruits and vegetables, the country has a number of advantages, such as climactic diversity and abundant labor, which favor further development of domestic production. Within 10 years, Calypso expects domestic production to reach $20 billion, benefiting the mostly small-scale farmers that dominate this segment. Calypso sources its raw materials from pineapples to gherkins from more than 5,000 small-scale farmers spread across more than 400 villages in South and East India. A team of Calypso agricultural extension agents provides those farmers with a comprehensive range 18 BUSINESS LINKAGES: Enabling Access to Markets at the Base of the Pyramid

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